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MF Global E-Mail: Corzine Thought Transfer Was From MF Account

Last week, a memorandum drawn up by the oversight panel of the House Financial Services Committee set off a firestorm surrounding former MF Global CEO Jon Corzine. The memo appeared to indicate that Corzine gave direct orders to transfer money out of a client account in order to cover an overdraft at a JP Morgan (NYSE: JPM) account.

The memo referred to an e-mail sent by a MF Global treasurer named Edith O'Brien which indicated that Corzine had ordered $175 million in customer money to be transferred into the account to cover the overdraft. If true, this would have been a direct violation of laws which require that customer money be segregated at all times. Many observers referred to the e-mail referenced in the memorandum as a near "smoking gun," which implicated Corzine in breaking the law.

On Monday, however, this narrative has changed as more details about the e-mail have come out. Now, reports indicate that Corzine was told that the money used to replenish the JP Morgan account came from MF Global and not customer accounts. This is a major contradiction from the original story.

Inexplicably, the oversight panel only released the most damning section of the e-mail without disclosing information which appears to contradict the premise of wrongdoing by Corzine. It has now been revealed that the e-mail said that the transfer was a "House Wire," meaning that it came from the firm's own money.

Furthermore, the e-mail states that the funds came from a "nonseg" account, or a noncustomer account. Making things even more complicated, however, is that this wasn't true - the transfer did contain customer money. Nevertheless, the e-mail does not confirm in any way that Corzine was aware of this. There is speculation that Corzine may have been informed of this through other means - a phone call or a face to face conversation, for example.

The new developments, however, reveal that the e-mail is hardly as incriminating as was first reported. On Friday, a Corzine spokesman said that the former CEO “never directed Ms. O'Brien or anyone else regarding which account should be used to cure the overdrafts, and he never directed that customer funds should be used for that purpose. Nor was he informed that customer funds had been used for that purpose.” Based on the contents of the e-mail, this appears to be a possibility.

Ms. O'Brien is set to appear before a Congressional panel this week and is planning to invoke her Fifth Amendment right against self-incrimination. New details in the mystery surrounding what happened to the missing MF Global client funds indicate that she may very well have some answers to a series of vexing questions, but she plans to stay mum.

Reports also indicate that JP Morgan was concerned about the source of funds which were used to cover the overdraft. In fact, the bank called Corzine to gain assurances that the money did not belong to customers. Subsequently, he called Edith O'Brien to confirm that the transfer was proper.

The former MF Global CEO testified in front of a Congressional committee that she assured him they were above board. “I had explicit statements that we were using proper funds, both orally and in writing, to the best of my knowledge,” he told a subcommittee. “The woman that I spoke to was a Ms. Edith O'Brien.”

Even after talking to Corzine, however, JP Morgan wanted further confirmation that the transfer did not include customer money. To this end, the bank crafted a letter which it wanted Ms. O'Brien to sign which asked for confirmation that all "past, present, and future" transfers complied with laws prohibiting the misuse of customer money in segregated accounts. MF Global and JP Morgan went back and forth on the details in the letter and three separate versions were drafted between the two companies. Ultimately, Ms. O'Brien didn't sign any of them.